United States

Market Status: US wind market grows in the gloom

US: The US wind market had a record year again in 2009, with installed capacity rising nearly 40% on 2008, the year of the US's financial collapse.

New projects brought US wind power generating capacity to 35.2GW, the highest total of any country. But last year's business and much of this year's is built on the legacies of better days, and despite strong installation numbers, the US wind market heading into 2010 is starkly different and more precarious than in the boom days of 2007 and 2008.

"There hasn't been much new activity since the financial crisis; it's really been about trying to land the backlog of commitments that have already been made," says Vic Abate, president of GE Energy's wind division, which provided nearly 40% of the turbines installed in the US last year (see chart, page 42). Orders at the end of 2008 and all through 2009 have been scarce, says Abate. GE's recent $1.4 billion contract to deliver 338 of its new 2.5MW turbines in Oregon is a rare exception.

Over several months in late 2008 and early 2009, the American Wind Energy Association (AWEA) warned of stagnating growth, but the volume of megawatts installed proved otherwise. Discarding around 300MW that properly belong in the end-year tally for 2008, close to 9.5GW came online in the US in 2009, about 870MW more than in 2008.

This was partly down to the $787 billion economic stimulus package passed by Congress in early 2009, which contained a 30% cash subsidy for the installed cost of a wind plant. Previously, the subsidy was in the form of a production tax credit (PTC), which typically required complicated shared-equity partnerships with big banks. The PTC is still an option until 2012, but a lack of eager banks has rendered it much less useful.

Installations last year would likely have been much lower had the US government not stepped in. Major project developer Iberdrola says it would have halved its US build in 2009 without the grants. But, with over $550 million in cash grants, it installed around 1.2GW in 2009.

So helpful has the grant programme been that this year AWEA and major independent power producers have already begun to lobby Congress to extend the grants beyond their 2010 deadline.

As the law stands now, developers hoping to qualify for the grant must begin construction on a wind project before the end of this year, spending at least 5% of total expected final cost. That allows the developer to use 2011 and 2012 to finish construction. The wind market would like to see both the construction start and the finish deadlines extended, but Congress may not have the appetite or the unity to meet the industry's needs amid an increasingly rancorous political climate.

With the deadline in mind, some developers are expected to begin construction infrastructure on secured wind sites in order to reach the 5% threshold before the end of the year, even if they cannot immediately finance further build work. This would still leave two years for construction to finish, assuming no extension is granted.

"Toward the end of the year, we're going to see a big construction push for projects to take advantage of the grant programme," says Matthew Kaplan, an analyst with Emerging Energy Research. "We'll see a very large uptick, potentially for the manufacturers as well, due to that."

Renewable electricity standard

Whether or not the cash grant programme is extended, there is broad consensus that a federal renewable electricity standard (RES), mandating a minimum proportion of renewables in the supply mix, needs to be put in place to take wind off temporary or start-stop measures - be they grants or tax credits. Around 60% of US states already have such a policy in place at the state level.

"Until we get beyond the stimulus bill policy and into a long-term energy policy that has a RES as the federal standard, (the wind market) will continue to be a challenge," says Abate.

Less certain, however, is how the US market moves from short-term cash or tax credit policies to an RES policy, if lawmakers pass one. All the business models in the current US market assume either the grant or the tax credit.

"You couldn't overnight say the PTC is off, go to an RES. It would be a massive destruction," says Abate. "So you have to have some plan that gets us into a long-term energy strategy, that says the country is going here - lets say 20% wind by year 2020 - these are the laws that will be passed, the mechanisms used, it will work like this, and everyone can plan for it in a very systematic and competitive way."

Much is at stake in getting the transition right, says Abate, for his and other companies that invested vast sums building up the market. GE has invested over a billion dollars since it entered the sector in 2002 with the purchase of Enron Wind. "The whole industry has scaled up," says Abate. "Everybody in it now is bigger and I think the country is ready, it has the capacity and the wherewithal to build the next generation power technology. We just need the leadership of the country to say, let's go."

Irrespective of policies like the cash grant, the PTC or even the possible transition to an RES, there are some fundamentals to today's changed market that are having a cooling effect. "The stimulus package is certainly helping ease the economic situation for the wind industry, however some results in the economy, such as the fall in power prices, have impacted on projects," says Kaplan. "There are still difficulties with developers securing power purchase agreements from the utilities. The utilities are questioning, with power demand down in this economy, why to procure more power right now."

In years past, some wind developers have gone without power purchase agreements (PPA) contracts, instead selling into wholesale markets with fluctuating power prices. But in an era of tighter credit, those deals have all but evaporated, making it necessary for developers to arrange PPA deals. Some owners of recently installed wind stations are vulnerable to market prices and have joined a crowded field looking for limited PPAs.

Service and turbines

One profound shift in the wind market already noticeable towards the end of 2009 is that manufacturers are providing more operations and maintenance (O&M) service and over longer periods. As the original designers, turbine makers have long argued they are best placed to service turbines. Historically, O&M contracts from turbine vendors have often been for short initial durations.

But as turbine vendors pull in less cash from markedly fewer turbine sales, many are moving more deliberately into providing O&M services as an added profit cushion. Developers are also asking for longer service contracts - some because they are playing their stronger hand in a buyer's market to win concessions along with delivery, others because banks are demanding more favourable terms as a condition of lending or providing equity.

Adding to the buyer's market is the availability of a broader range of turbines. In 2008 there were ten turbine types installed, totalling 8.3GW. This year, there were 13 turbine brands with new units slicing up the market pie from Nordex, Nedwind, Dewind and Goldwind - the first Chinese turbines to be installed in the US.

Market shares for new installations shifted to reflect the broadening mix. GE Energy remains dominant but saw its 2008 market share of 45.8% fall to 39.7%. Denmark's Vestas increased its share from 12.3% to 14.7%, Germany's Siemens notched up from 9.5% to 12.2%, while Mitsubishi stepped slightly ahead of Suzlon for fourth place. Germany's Repower saw the quickest yearly growth by installing 322MW, up from 102MW in 2008.

The big question in 2010 is whether the new orders will be enough to carry the industry forward. "2010 is very much going to have a post-recession feel," says Kaplan. "The first half of the year, the industry will look to regain its footing in terms of the (original equipment manufacturers) getting new orders, developers looking for financing for the projects. I think the market is still improving and will very much be improving through the first half of the year."

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.